Debt trap: Keep payday and predatory lenders out of Pennsylvania

Members of the state Legislature must be even more out of touch than usual. How else do you explain why several Pennsylvania lawmakers want to welcome the so-called “payday loan” industry into this state with open arms.

Questionable lending got America into the present financial mess. You would think all of us would have learned our lesson about being careful with debt, but not so in Pennsylvania.

Payday loans are big business. Lenders target low- and moderate-income communities with the promise of quick cash that they can repay when their next paycheck comes in a week or two.

But there’s no such thing as a free lunch, as the old adage goes. These payday loans come with a catch — 300 percent or higher interest rates. Sometimes the rates go as high as 1,000 percent.

You don’t need a Ph.D. in mathematics or economics to realize that payday loans are a debt trap. Once a person gets one of these excessive term loans, they are almost certainly going to need more and more loans. Studies show that only 2 percent of borrowers repay quickly and don’t take out another loan.

This is not a new trick. Almost every religion specifically forbids charging excessive interest on loans because these practices have been around since ancient times. Business owners get rich quick at the expense of the poor.

For years, Pennsylvania has rightly said no to this industry. Our citizens have been protected. Lenders are not allowed to charge interest above about 24 percent. That’s still high, but it’s not the triple digit percentage predatory lenders need to sustain their business model, so the industry has stayed away. There was even a state Supreme Court case that found it illegal for online lenders to do payday and other predatory loans here.

Now Rep. Chris Ross (R-Chester) is sponsoring House Bill 2191 to allow predatory lending in this state.

If his bill passes, Pennsylvania will have businesses such as “Cash N Go” and “Cash America” in most strip malls and street corners in poor areas of town. Some say it will bring jobs, but at what cost?

We’re likely talking about minimum-wage jobs to charge outrageous interest rates on fellow citizens who are desperate for money. That’s not job creation, that’s community destruction.

It’s just like the mortgage lending mess. If it sounds too good to be true, it is. Perhaps Pennsylvania lawmakers have forgotten how the payday loan industry used to target the U.S. military. It got so vicious that President George W. Bush signed a law in 2006 forbidding loans to servicemen and their families above 36 percent because the 400 percent-plus loans were so devastating to our military. Is this the industry we want to invite into Pennsylvania to target our low-income populations and elderly?

There’s a reason religious texts forbid these types of loans. There’s a reason Pennsylvania, the District of Columbia and 16 other states prohibit these loans.

There’s a reason New Hampshire, Ohio and Arizona allowed these loans and then reversed their policies once they realized the harm it was causing.

There’s a reason groups as diverse as the AARP, veterans organizations, several United Ways and consumer advocates oppose this bill.

There will never be enough protections on a person getting a 400 percent loan. All it does is make a bad financial situation worse once these lenders get first priority to people’s bank accounts.

Pennsylvania would have to be crazy to invite the payday loan industry into our midst.